Trading ranges do not have a edge and when you see one, consider that we are seeing random price action and there is no edge. Yes, you can trade the bounces at extremes blindly but that, again, is not an edge but guesswork.
But people still trade them and rack up small losses, get frustrated, and then when the real move comes, they are not prepared to trade it.
This daily chart is a mess and would be difficult to trade as price rips up and down between the extremes. Standing aside is the best solution for this daily chart and monitor for smaller ranges to form at either red box location.
Consolidation at extremes can hint at where the imbalance is and you can watch lower time frames to see our preferred entries, failure tests or springs.
If price formed at the top red, I’d watch for small tests below the smaller range and immediate rejection back inside the red box.
For the bottom, I’d look for tests and rejections of highs. After understanding the context and price action, I’d consider positioning inside the small range to be in position for the break of the larger range.
Trade Lower Time Frames
When higher time frames are in consolidation like the daily chart, there is another option for those who have had success trading higher time frames – go lower.
Higher time frame consolidations often have moves you can trade that are often violent, on the lower time frame.
This is a one hour chart of the same currency pair using the same extremes as the daily chart. Keeping context in mind, you’d keep expectations in check, take the easy move, and get out during adverse price action.
We have tests of extremes, trend line breaks, support trades – all things you can do using simple approaches to the market. I’ve always said that simple works and it plays out virtually every week in the free Forex setups and signals that I post.
Trading the one hour chart is not my approach much any longer as my goal was always to cut down on the time spent trading. Besides, I like the action on the higher time frames. The lowest I generally go is the four hour chart but that is in the context of the daily charts and up.
This post came as an answer to the following question:
Hey SD can I get your opinion on something please? I’ve been watching EURAUD for ages now and it’s stuck in a DAILY range of 1.587 and 1.572. I’d only trade the break on a day close as there’s been so many false starts on the lower timeframes. How would you trade this one? There’s obviously a lot of potential here.
I answered the question but have to comment on: There’s obviously a lot of potential here.
I also want to see that on the four hour chart, my preferred lower time frame, there was nothing to indicate that the consolidation was coming to an end. In fact, the failure test of highs and lows indicated the exact opposite.
There may be potential or there may not be. All we can do is see how price responds and act accordingly. Thinking there is potential can lead us to take a trade with price action that only fits our bias, and not the reality of the market – meaning – the move you trade may have no meaning. Think confirmation bias.
Perfectly put, and for me, a very reasoned and thorough reply. Thanks for the considerable effort that has gone into this post – it demonstrates a very genuine desire to help point us in the right direction….;)
Excellent Article very simply put .I like your analysis .
Thanks…I appreciate the comment.